“The Best Investments Are Often the Ones that Few People Have Heard Of”

Ron Lieber at the New York Times writes an article dear to my heart. He notes that the best investments to own are often not very well known. Lieber asked the folks at Wilshire Associates to list the top-performing stocks of the last 30 years.

Here’s what they came up with:

There are a few famous names like Home Depot ($HD), but many are well below Wall Street’s radar. Regular readers of Crossing Wall Street, however, will recognize some of the top stocks like Danaher ($DHR), Raven Industries ($RAVN), Leucadia National ($LUK) and Eaton Vance ($EV).

The top-performing stock on the Wilshire list is Home Depot. Was anyone pointing at that company back in the early 1980s and insisting that it was going to the moon?

“Oh no,” said Arthur Blank, one of Home Depot’s founders, when I asked him this week. “We had no idea that was going to happen. When we went public in 1981, we only had eight stores.”

Indeed, the best investments are often the ones that few people have heard of, and sometimes the companies like it that way.

Take Danaher, which makes a variety of testing and dental equipment, among other things. Its founders are two brothers, Steven and Mitchell Rales, who named the company after a Montana fishing area and rarely talk to the media. Danaher executives did not return several calls for comment, and a former group president, George Koenigsaecker, said its silence had long been strategic. He helped oversee a transition to what became known as the Danaher Business System, a rigorous operating philosophy that survives to this day and wrings excess out of every part of every company it owns.

The company shunned most visitors. “There was little value to sharing this knowledge and your people with companies you might acquire and improve, as opposed to them acquiring your people and improving themselves,” said Mr. Koenigsaecker, who is the author of “Leading the Lean Enterprise Transformation” and is still a shareholder. “I should have bought more.”

As a true believer with intimate knowledge of the company even after his departure in 1992, Mr. Koenigsaecker had the willpower to hold on to the stock. But this is a hard thing to do for most individual investors.

There are thousands of companies that are listed in the stock exchange, and hundreds of them aren’t followed by a single Wall Street analyst. Lieber makes the point that some of these companies like it this way.

If you sit down and read the financial reports, it doesn’t take you long to know as much about a stock as anyone. That’s what happened when I first learned of Nicholas Financial ($NICK). The stock is up more than fivefold in three years and still no one follows it.

Posted by Eddy Elfenbein on June 4th, 2012 at 12:49 pm

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